How to Buy a Self-Storage Facility With Seller Financing

What is seller financing on a self-storage facility?

Seller financing, also called owner financing or a seller carryback, means the seller acts as the lender for part or all of the purchase price. You pay a down payment at closing, sign a promissory note for the balance, and make payments to the seller instead of a bank.

The note is normally secured by a mortgage or deed of trust on the facility, depending on the state. If you stop paying, the seller can enforce that security the way a bank could. Title transfers to you at closing, so you own and operate the facility from day one.

A seller can finance the whole balance after your down payment, or carry a smaller second note behind a bank or SBA loan. If you are new to the overall process, start with how to buy your first self-storage facility, which covers every step from buy box to closing.

Why would a self-storage owner agree to finance the sale?

Many owners agree because seller financing can spread their tax bill over time, turn the facility into steady interest income without the work of running it, and bring in more buyers or a better price.

Settle on what the facility is worth before you negotiate terms. The valuation guide shows how to price an offer on in-place income.

• Tax timing. When a seller receives at least one payment after the year of the sale, the IRS treats it as an installment sale, and the seller may be able to report the gain as payments come in rather than all at once (IRS Publication 537). Depreciation recapture is generally reported in the year of sale regardless, so the seller should talk to a CPA.
• Income without operations. A seller who is tired of running the business but likes the cash flow can keep receiving monthly payments, now with interest.
• A bigger buyer pool. Offering terms lets the owner sell to buyers who can’t or don’t want to qualify for a bank loan, which can mean a faster sale or a stronger price.
• Security. The facility itself secures the note. If the buyer defaults, the seller can take it back through the remedies in the loan documents and state law.

Long-time owners who have paid down or paid off their mortgage are usually best placed to carry a note. Others need all cash at closing. You find out by asking.

When I was the seller: a short-term note I carried

I’ve been on the other side of the table too. When I sold a facility back to its original owner, I acted as the lender: the buyer paid part of the price at closing, and I carried the rest as a promissory note secured by a mortgage on the facility.

Where do you find seller-financed self-storage deals?

Seller financing comes up most often on off-market deals bought directly from the owner. When you are talking with the owner, everything is open for negotiation, including terms. For the step-by-step outreach process, see how to find off-market self-storage deals.

Listed deals on Crexi, LoopNet and BizBuySell can include seller financing, but you are competing with many more buyers, you often can’t talk to the seller directly, and the broker’s job is to get the highest price. The full sourcing process, including how to build a buy box and screen markets, is in the deal sourcing section of the first-facility guide.

A great note on a bad facility is still a bad deal, so screen the facility first.

What seller financing terms can you negotiate?

Almost everything is negotiable: the purchase price, down payment, interest rate, term, amortization, any interest-only period, the balloon date and prepayment rights. These terms trade against each other, so negotiate the package, not one number.

When I was the buyer: a rate increase that lowered my payment

Amortization is the lever most buyers overlook. On one facility I bought for $2.5 million, the seller carried the note on these terms:

A note on very low interest rates

A 0% or very low rate can be a real win for a buyer, but it has tax consequences. If an installment sale doesn’t provide adequate stated interest, the IRS can recharacterize part of the principal as interest, using test rates tied to the applicable federal rates (IRS Publication 537, “Unstated Interest and Original Issue Discount”). That changes how both sides report the deal, so have both CPAs review a low-rate note before you sign.

How do you ask a seller to carry the note?

Ask after you understand what the seller wants from the sale. A seller who needs all cash to buy something else is a poor fit. A seller who wants income, a smaller tax bill in one year or a clean exit from operations may be a good one.

Practical ways to raise it:

• Learn their goals first. Ask what they plan to do after the sale, what matters most to them (price, timing, income or simplicity), and whether they have a mortgage on the property.
• Frame it around their goals. Seller financing is a solution for the owner, not just a favor to you. Monthly income and possible installment-sale tax treatment are the usual benefits. Point them to their CPA rather than giving tax advice yourself.
• Offer options. Give the seller a choice, such as a higher price with longer terms or a lower price with a shorter term. That turns “yes or no” into “which one.”
• Show you can run it. A seller carrying the note needs confidence you will operate well and pay on time. Point to what you have done or will do. Kevin bought his first facility for $705,000 when it was bringing in about $3,000 to $3,500 a month, with no website, no Google Business Profile and cash or check payments only. He ran his operating playbook, grew revenue to about $12,000 a month and sold it about two years later for $1.25 million. That is one deal, not a typical or promised result.

How do you put seller financing in your LOI?

Spell out the financing terms in the letter of intent alongside the price, so the seller agrees to the whole package before anyone pays for a purchase agreement. Vague phrases like “seller to carry a note on terms to be agreed” invite a fight later.

Kevin’s LOI must-haves still apply:

• A non-binding statement. The LOI sets out terms; the purchase and sale agreement is the binding contract.
• Exclusivity. While you work toward a PSA, the seller agrees not to market the property to other buyers.
• A response deadline. Usually 5–7 days to accept, counter or decline.
• The terms that will go into the PSA. Price, the due diligence documents you are requesting, the due diligence period and the closing timeline.
• A little about you. Why the seller should sell to you, and why you are the buyer most likely to close.

For a seller-financed offer, add the financing terms: the amount financed, interest rate, term, amortization, any interest-only period, payment start date, prepayment rights, and whether the note will be first or second in line if a bank is involved. The offer section of the first-facility guide covers what to watch for in the PSA.

What legal documents and protections do you need?

At a minimum, you need a purchase and sale agreement, a promissory note, and a mortgage or deed of trust that secures the note, all drafted or reviewed by a real estate attorney in the facility’s state. Treat seller financing as a real loan, because it is one.

The promissory note and security instrument

The promissory note is your promise to repay. It sets the amount, rate, payment schedule, maturity date, late fees, default and cure provisions, and prepayment terms. The mortgage or deed of trust is recorded against the property and lets the seller foreclose if you default, so understand exactly what happens if you miss a payment.

The seller’s existing mortgage and due-on-sale clauses

If the seller still has a mortgage, it likely has a due-on-sale clause, which lets the lender demand full repayment if the property is sold or transferred without its consent. Federal law, in the Garn-St Germain Act, generally allows lenders to enforce these clauses (12 U.S.C. § 1701j-3). The law’s exceptions, such as transfers to a spouse or into a living trust, apply to residential property with fewer than five dwelling units, not to a commercial storage facility.

In practice, the seller’s loan usually has to be paid off at closing, or its lender has to consent. Don’t agree to a “wrap” or “subject-to” structure that leaves the seller’s loan in place without the lender’s written consent and your attorney’s review. Confirm the payoff amounts and liens through the title commitment.

Other protections to ask your attorney about

• Title insurance and a review of all existing liens.
• Whether the seller wants a personal guarantee.
• Your right to prepay without penalty so you can refinance.
• Insurance, property tax and reporting requirements the seller will impose.

Can you combine seller financing with a bank or SBA loan?

Yes, but the bank or SBA lender will set the rules. A lender almost always requires the seller’s note to be subordinate, which means second in line behind the senior loan, and SBA loans add specific limits on how a seller note can count toward your down payment.

Bank loans plus a seller note

A common structure is a bank loan for most of the price, a seller note for part of the rest, and your cash for the remainder. The bank will usually require a subordination agreement and may limit the note’s terms, so ask early what it will accept.

SBA loans plus a seller note

For a complete change of ownership, the SBA’s 7(a) rules call for an equity injection of at least 10% of total project costs. Under SBA SOP 50 10 8, effective June 1, 2025, a seller note can count toward that injection only if it is on full standby, meaning no principal or interest payments, for the life of the SBA loan, and only for up to half of the required injection (SBA SOP 50 10). A seller note that doesn’t count toward your injection may have different terms, but the lender must still approve it. SBA rules change, so confirm the current requirements with your SBA lender before you put an SBA-plus-seller structure in an LOI.

For an overview of SBA 7(a), SBA 504, bank loans, private money and equity partners, see the financing section of the first-facility guide.

Do Dodd-Frank seller-financing rules apply to self-storage?

Generally not to the storage loan itself. The best-known Dodd-Frank seller-financing rules come from Regulation Z and apply to consumer credit secured by a dwelling. Credit extended primarily for a business purpose, or to a non-natural person such as an LLC, is generally exempt from Regulation Z.

Regulation Z exempts business, commercial and agricultural credit, and credit extended to anyone other than a natural person (12 CFR 1026.3(a)). The seller-financer criteria people often quote, such as financing three or fewer properties in 12 months with fully amortizing loans, appear in the loan originator rules for credit secured by a dwelling (12 CFR 1026.36(a)(4) and (a)(5)). Buying an operating storage business through an LLC is a business-purpose transaction.

Two cautions: some facilities include a house or manager’s apartment, and state lending, licensing and usury laws can apply regardless of the federal rules. Have your attorney confirm what applies to your deal.

How do you know if a seller-financed deal works?

Run the seller’s terms through the same underwriting you would use for a bank loan. Start with the facility’s actual net operating income, then check the debt service coverage ratio (DSCR), your cash flow after payments, and whether you can pay off or refinance the balloon when the note comes due.

Ask four questions of every structure:

1. Does NOI cover the payment comfortably? Check the DSCR (NOI ÷ annual debt service) during any interest-only period and after amortization starts.
2. How much cash is left? Count your down payment, closing costs and reserves.
3. What happens at the balloon? Estimate the balance due and whether the facility will support a refinance by then.
4. What does the price do long term? A higher price can raise property taxes after reassessment in some states and affects your equity when you sell or refinance.

Seller financing doesn’t replace due diligence. The full checklist is in the first-facility guide.